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I used to pass a mortgage company billboard on the freeway every
day that read: “Surprises are for birthday parties.” (Implied:
surprises are usually unpleasant when they arise in the context
of real estate transactions.) The worst case scenario that
looms large in the minds of buyers, refinancers and sellers alike
is that they’ll get to the close of escrow and some big glitch
will arise, coming between you and your home – or your
cash.

Here are 4 key need-to-knows to help you avoid getting a nasty
surprise at the closing table.

Read my lips: no new
bills (or other financial blips). Most savvy buyers know
better than to run out and buy a car while they’re trying to buy
a home. But you’d be surprised at how many don’t think
twice before opening new credit accounts to buy appliances or
finance the kitchen remodeling work they plan to have done as
soon as they get the keys to the place. Many a lender will
run a quick credit check right before closing, mostly so they can
detect whether your bills – your monthly obligations – have
increased to a point that pushes your debt-to-income ratio too
high to qualify for the home, or would make it tough for you to
pay your new mortgage.

If your escrow runs 45, 60 or 90 days (or longer) as they
commonly do in short sales and sales of bank owned homes, new
accounts can certainly show up on your credit report in that time
frame, endangering the deal and generating a surprise “no deal”
from your lender just when you thought you’d be getting a set of
closing docs to sign.

Also, some lenders conduct a last-minute check of borrowers bank
account statements. Of course they want to make sure that you
have the cash you need to seal the deal. But you might be
surprised to learn that lenders also want to be sure that there
are no unexplained, major deposits to your account, as
well. They know some borrowers are inclined to borrow fistfuls of
dollars from family and friends just before closing in an effort
to scrape together the cash they need to close their home
purchase by any means necessary.

And, unless the money is a lender-approved gift, that’s not
allowed! (Why? The mortgage lender wants to avoid the friend or
relative later saying they “own” part of the house, and also
doesn’t want your obligation to repay a “friend-and-family” loan
to interfere with your ability to repay your new home loan!)

If you have any large deposits (other than your normal income)
come in just before or during escrow, be prepared to both explain
them and document their source.

Make full disclosure
when you first apply for your mortgage or short sale.
Today’s loan underwriters are notorious for being sticklers about
verifying and re-verifying the facts on your loan application.
And as mortgage guidelines have tightened, lenders have
also tightened up the underwriting process, creating a virtual
gauntlet of review after review, underwriter after underwriter
that you have to get past in order to close your deal. The
most critical one? The funder – it is this underwriter’s
job to give the thumbs up (or down) on wiring your mortgage money
into escrow.

Funders are the toughest to get past, understandably, because the
buck stops with them when it comes to their employer’s issuance
of tens, even hundreds of millions of dollars of mortgage money
every year. So, they want to be sure every last one of your
loan qualifying i’s are dotted and t’s crossed – up to the very
last possible moment before they green-light the
disbursement. They have the right – scratch that – the
responsibility to re-check your credit, assets, even your
employment at the last minute, and they take this responsibility
very seriously.

And on a short sale, the pre-closing title check can reveal legal
judgments and liens against the seller that have been placed on
the property up to the day of closing.

I’ve seen deals fall apart or come to the brink of failure the
day or so before they were supposed to close because a buyer had
lost a job, turned out to actually be legally married (the
divorce they’d put on the application was not yet final), or a
new collection account had surfaced. I recently saw a short
sale nearly cancelled when a new collection account of the
seller’s was filed
as a lien on the house. Once, I even saw a deal killed
beyond salvation when a last minute credit re-check surfaced a
social security number flag that revealed one buyer was not in
the country legally!

To avoid these sorts of last minute surprises, be 100 percent
honest with your real estate and mortgage agents at the beginning
of your homebuying (or selling) process about any and every area
of your life that corresponds to a mortgage or short sale
application question, even before you complete the application –
there’s almost no such thing as an overshare at that stage.
That puts them in a position to help you avoid closing table
drama from the jump, even if it means they advise you to stay in
your job, settle some bills or buy the home on your own, rather
than with your spouse.

Watch the calendar
closely. Buyers who originally were pre-approved for
their mortgage many moons before they find the right property
should obtain updated estimates of their mortgage payments and
the cash they will need to close their purchase as their house
hunting period goes on, and especially once they have a
firm closing date estimate. Mortgage interest rates can change
dramatically over a period of a few months, and closing costs
vary widely based on things as seemingly minor as whether your
transaction closes at the beginning or the end of the month.

To avoid getting to closing and realizing that you have to come
up with an extra few weeks’ worth of prepaid mortgage interest
because your closing date changed, make sure your real estate and
mortgage brokers are in close communication, and ask them to keep
you apprised of how any closing date changes will impact the size
of the check you’ll have to write to close the deal. And if
you’re buying a property that is a short sale or foreclosure, ask
them to give you this briefing as soon as possible (and as
frequently as possible!) in the transaction so that you can
prepare a little cushion of extra cash in case closing is delayed
for reasons beyond your control (which happens very frequently in
these sorts of sales).

Obtain and review
your closing documents in advance. I used to give
this advice mostly to buyers, urging them to ask their agent and
mortgage broker to provide them with their loan and title
documents at least a day or so in advance – earlier, if
possible. If you have to sign 300 pages at the closing
table and you know your keys and moving plans hang in the
balance, the chances you’ll be scrutinizing every line are pretty
slim – and if you do happen to catch an error, the time it will
take the lender to revise and reissue a set of papers can throw
your moving calendar entirely out of whack.

The best practice is to get these documents in advance, so you
can check on line items like the interest rate and monthly
payment in the comfort of your own home or office, ask questions
of your representatives and initiate any corrections that need to
be made without disrupting the plans for signing and closing.

And this applies to sellers, too – even though buyers have a much
higher volume of paperwork to get through at closing (and errors
can be costly), closing doc errors occasionally arise that have a
serious impact on sellers, as well. I was once asked for
advice in a situation where the seller owned two neighboring
parcels of land, and the title paperwork for the sale of one
erroneously included the other one, too! It took a boatload
of high-drama legal wrangling to get the mistake corrected, and
get the sellers' other lot back.